6-

Lewis runs an outdoor adventure company and wants to know what effect a tax change will have on his company's WACC. Currently, Lewis has the following financing pattern:

Equity:

33%

and cost of

18.36%

Preferred stock:

11%

and cost of

13.94%

Debt:

56%

and cost of

11.6%

before taxes

What is the adjusted WACC for Lewis if the tax rate is

a.

40%?